World Gold Council: Gold Market Update

World Gold Council:

Gold Market Update

Presented by John Reade November 2019

World Gold Council members

26 companies; 500+ projects; 100+ productive mines; operations in 45+ countries

2World Gold Council | Market Update | November 2019

The World Gold Council

3

Data

Analytics

Research

Market knowledge

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Leading industry authority on gold for 30+ years

World Gold Council | Market Update | November 2019

Strategic case for gold


The Strategic Case for Gold


1. A source of returns over the long term, not just in crises or inflation

2. Diversification that works, especially when you need it

3. Gold’s impact on portfolios

4. The more gold (2-10%) in a portfolio, the better the risk adjusted return

5. Not as volatile as often perceived

6. A deep and liquid international market

7. Outperforms and/or outlasts fiat currencies

The strategic case for gold: returns


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Since 1971 20-year 10-year

CAGR

US Cash US Bond Agg. US stocks EAFE stocks EM stocks Commodities Gold

Gold's long-term performance compared to other financial assets*

*As of 31 December 2018. Based on total returns indices including MSCI US, MSCI EAFE net, MSCI Emerging Markets net, JPMorgan 3-month US cash,

Bloomberg Barclays US Bond Aggregate, Bloomberg Commodity Index. Gold performance based on the LBMA Gold Price. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

The strategic case for gold: diversification

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• Correlation versus stocks

• • Correlations

• • Liquidity

• • Portfolio impact

•


-0.50 -0.25 0.00 0.25 0.50 0.75 1.00

S&P down by more than 2σ

S&P between ±2σ

S&P up by more than 2σ

CorrelationGold Commodities

Correlation of US stocks versus gold, commodities*

*Based on weekly returns of the S&P 500, LBMA Gold Price and the S&P Goldman Sachs Commodity Index using data between 1 Janua ry 1987

and 31 December 2018.

Source: Bloomberg, ICE Benchmark Administration, World Gold Council

The strategic case for gold: portfolio impact

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• 10-year analysis of a hypothetical pension fund portfolio


5.6%

13.1%

-43.5%

Return

Volatility

Max Drawdown

5.7%

12.1%

-38.9%

Foreign stocks,

20.0%

US stocks,

30.0%

US Bonds,

17.0%

Cash, 1.0%

Foreign

bonds, 3.0%

EM government

bonds, 1.0%

Real

Estate, 11.0%

Hedge

Funds, 6.0%

Private

Equity, 9.0%

Commodities,

2.0%

Hypothetical US pension fund portfolio*

*As of 30 June 2018.Based on the 2018 Global Pension Fund Asset Study and 2017 Global Alternatives Survey.

Source: Willis Towers Watson, Bloomberg, World Gold Council

Foreign stocks,

18.7%

US stocks,

30.5%

US Bonds,

16.1%

Cash, 1.0%

Foreign

bonds, 3.6%

EM government

bonds, 1.4%

Real

Estate, 6.7%

Hedge

Funds, 8.0%

Private

Equity, 8.2%

Commodities,

1.6%

Gold,

4.2%

Optimized average pension fund portfolio*

*As of 30 June 2018.Based on re-sampled efficient optimization.

Source: Willis Towers Watson, Bloomberg, World Gold Council

*Willis Towers Watson provides analysis of typical portfolio allocations of global pension funds as of December 2018

The strategic case for gold: portfolio impact


0.835

0.840

0.845

0.850

0.855

0.860

0.865

0.870

0.875

Avg. PF portfolio

2% gold 5% gold 10% gold

Portoflio mix

Risk-adjusted return of a hypothetical average US pension fund (PF) portfolio with various allocations to gold*

*Risk-adjusted return computed by dividing portfolio return with annualised volatility based on total return indices and benchmarks listed below, using data from December 2008 to December 2018 and assuming quarterly rebalancing. The composition of the hypothetical average PF portfolio is based on Willis Tower Watson Global Pension Assets Study 2018 and Global Alternatives Survey 2017. It includes a 50% allocation to stocks (30% Russell 3000, 20% MSCI ACWI ex

US), 25% allocation to fixed income (22% Barclays US Aggregate, 1% Barclays Global Aggregate ex US, 1% JPMorgan EM Global Bond Index and 2% short-term Treasuries), and 25% alternative assets (9% FTSE REITs Index, 7% HFRI Hedge Fund Index, 7% S&P Private Equity Index and 2% Bloomberg Commodity Index). Gold based on the LBMA Gold price and the respective 2%, 5% and 10% portfolio allocations come from proportionally reducing all other assets.

Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Risk-adjusted return

The strategic case for gold: volatility

10World Gold Council | Market Update | September 2019

The strategic case for gold: liquidity

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• Gold trading

World Gold Council | Market Update | September 2019

0 100 200 300 400 500 600

US Treasuries

US$/sterling

JGBs

US Agencies

S&P 500 (all stocks)

Gold**

Euro/yen

Dow Jones (all stocks)

UK Gilts

German Bunds

US$bn/day

Gold trades more than many other major financial assetsAverage daily trading volumes in US$*

*Based on estimated 1-year average trading volumes as of 31 December 2018, except for currencies that correspond to 2016 volumes due to data availabilit y.**Gold liquidity includes estimates on over-the-counter (OTC) transactions, and published statistics on futures exchanges, and gold-backed exchange-traded products.

Source: BIS; Bloomberg; Germany Finance Agency; Japan Securities Dealers Association; LBMA; UK Debt Management Office (DMO); World Gold Council

Stocks

BondsCurrencies

Gold and capital preservation: inflation

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• Gold and inflation


0%

2%

4%

6%

8%

10%

12%

14%

16%

Low inflation (≤3%) High inflation (>3% )

Avg. annual return

US CPI %y-oy

Nominal return Real return

Gold returns as a function of annual inflation*

* Inflation computed using annual US CPI year-on-year changes between 1970 and 2018.

* * For each year on the sample, real return = (1+nominal return)/(1+inflation)-1.

Source: Bloomberg, Bureau of Labor Statistics, ICE Benchmark Administration, World Gold Council

Gold and capital preservation: currency

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• Gold and currency depreciation


0

20

40

60

80

100

120

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

US dollar Mark** Reichsmark Deutschemark ECU

Euro Yen Pound sterling Gold

Relative value between major currencies and gold since 1900*

Value relative to gold (1900=100)

*As of 31 December 2018. Based on the annual average price of a currency relative to the gold price. **The ‘Mark’ was the currency of the late German Empire. It was originally known as the Goldmark and backed by gold until 1914. It was known as the Papermark thereafter.Source: Bloomberg; Harold Marcuse – UC Santa Barbara; World Gold Council

Real World Examples

Asset Owner investment challenges

Case Study: inflation protection

15World Gold Council | Confidential and proprietary. For intended use only. Not for distribution.

• Investor: Large defined benefit plan with a desire to protect plan assets against inflation

• Challenge: Looking for efficient ways to protect against inflation while diversifying

• Request: Reached out to the World Gold Council to better understand:

• drivers of gold

• performance in various inflation environments

• correlation to other assets

• best ways to implement

Solution: Upon committee approval, allocated ~2% to gold as part of a broader inflation

hedging program

The Strategic Case for Gold


❑ University of Texas (UTIMCO)

❑ 1.5% allocation to gold as part of Real Assets Strategy

❑ The Following pensions funds disclose they hold gold – no details

❑ State of Arizona Public Safety; $11B plan

❑ Pennsylvania Public Schools; $57B plan

❑ Texas Teachers Retirement System; $156B plan

❑Some European Funds

❑No disclosure

Central Banks the strongest story in gold

Central bank buying key positive demand driver in Q2-19


Strong central bank purchases continued in Q3-19


Rolling 12m retreated slightly in Q3-19



CB buying the most since Nixon closed the ‘window’

What is driving current central bank demand?


1. Foreign exchange reserves are growing.

2. De-dollarization for political reasons.

3. Re-emergence of gold as a strategic asset.

4. Structural changes in the international monetary system.

5. Policy related growth - Turkey’s growth is partly related to other policies.


De-dollarization driving Russian purchases


Structural changes in the IMS?

Increase in gold

reserves (tonnes)

6.5

137.4

25.7

31.5

1.61.6

0.5

Russia 497.8

Turkey 137.4

Kazakhstan 92.4

India 40.8

Hungary 31.5

Poland 25.7

Mongolia 13.3

Tajikistan 7.7

Colombia 7.1

Iraq 6.5

Kyrgyz Republic 6.3

Egypt 2.7

Jordan 2.2

Philippines 1.6

Qatar 1.6

Serbia 1.6

Thailand 1.6

Belarus 0.8

Malaysia 0.6

Suriname 0.6

Indonesia 0.5

Bangladesh 0.2

Source: IMF, World Gold Council. Data reflects cumulative net purchases amongst select central banks from January 2017 to February 2019

Poland’s figure includes all announced gold purchases, although only approximately half of those purchases are reflected in official reporting.

Turkey data reflects gold purchases outside of the Reserve Option Mechanism programme

Certain countries are excluded because their gold accumulations were the result of accounting changes, or because changes were the result of

regular swap activity

Disclaimer

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COPYRIGHT AND OTHER RIGHTS

© 2019 World Gold Council. All rights reserved. World Gold Council and the Circle device are trademarks of the World Gold Council or its affiliates. All references to

LBMA Gold Price are used with the permission of ICE Benchmark Administration Limited and have been provided for informational purposes only. ICE Benchmark

Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced.

Other third party data and content is the intellectual property of the respective third party and all rights are reserved to them.

Any copying, republication or redistribution of content, to reproduce, distribute or otherwise use the statistics and information in this report including by framing or

similar means, is expressly prohibited without the prior written consent of the World Gold Council or the appropriate copyright owners except as provided below. The

use of the statistics in this report is permitted for the purposes of review and commentary (including media commentary) in l ine with fair industry practice, subject to the

following two pre-conditions: (i) only limited extracts of data or analysis be used; and (ii) any and all use of these statistics is accompanied by a clear

acknowledgement of the World Gold Council and, where appropriate, of Thomson Reuters, as their source. Brief extracts from the analysis, commentary and other

World Gold Council material are permitted provided World Gold Council is cited as the source. It is not permitted to reproduce, distribute or otherwise use the whole or

a substantial part of this report or the statistics contained within it. While every effort has been made to ensure the accuracy of the information in this document, the

World Gold Council does not warrant or guarantee the accuracy, completeness or reliability of this information. The World Gold Council does not accept responsibility

for any losses or damages arising directly or indirectly, from the use of this document.

The material contained in this document is provided solely for general information and educational purposes and is not, and should not be construed as, an offer to

buy or sell, or as a solicitation of an offer to buy or sell, gold, any gold related products or any other products, securities or investments. Nothing in this document

should be taken as making any recommendations or providing any investment or other advice with respect to the purchase, sale or other disposition of gold, any gold

related products or any other products, securities or investments, including without limitation, any advice to the effect that any gold related transaction is appropriate

for any investment objective or financial situation of a prospective investor. A decision to invest in gold, any gold related products or any other products, securities or

investments should not be made in reliance on any of the statements in this document. Before making any investment decision, prospective investors should seek

advice from their financial advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such

investment decision.

Without limiting any of the foregoing, in no event will the World Gold Council or any of its affiliates be liable for any decision made or action taken in reliance on the

information in this document and, in any event, the World Gold Council and its affiliates shall not be liable for any consequential, special, punitive, incidental, indirect or

similar damages arising from, related to or connected with this document, even if notified of the possibility of such damages.

This document contains forward-looking statements. The use of the words “believes,” “expects,” “may,” or “suggests,” or similar terminology, identifies a statement as

“forward-looking.” The forward-looking statements included in this document are based on current expectations that involve a number of risks and uncertainties. These

forward-looking statements are based on the analysis of World Gold Council of the statistics available to it. Assumptions relating to the forward-looking statement

involve judgments with respect to, among other things, future economic, competitive and market conditions all of which are difficult or impossible to predict accurately.

In addition, the demand for gold and the international gold markets are subject to substantial risks which increase the uncertainty inherent in the forward-looking

statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded

as a representation by the World Gold Council that the forward-looking statements will be achieved. The World Gold Council cautions you not to place undue reliance

on its forward-looking statements. Except in the normal course of our publication cycle, we do not intend to update or revise any forward-looking statements, whether

as a result of new information, future events or otherwise, and we assume no responsibility for updating any forward-looking statements.

World Gold Council: Gold Market Update

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